What are the pros and cons of outsourcing payroll? This is a common question from businesses that may be considering in-house or outsourcing payroll. Regular issues with payroll can be detrimental, which emphasises the importance of efficient payroll management.
To avoid costly delays, many businesses outsource payroll – but does that mean it’s the right choice for you? To learn the pros and cons of outsourcing payroll in the UK, continue reading.
What is Outsourcing Payroll?
Outsourcing payroll is when a company hires a third-party to manage their payroll, including calculating employee wages, making payments, handling other related tasks, and ensuring legal compliance. Accountants offer payroll outsourcing services, allowing companies to free up time and focus on other important aspects of running a business.
In-House Payroll vs Outsourcing Payroll
When it comes to payroll, there are two options – in-house payroll or outsourcing payroll, but what’s the difference?
| In-House Payroll | Outsourcing Payroll |
|---|---|
| Completed by your staff | Completed by a third-party |
| More control | Less control |
| Time-consuming | Less time-consuming |
| May not ensure full legal compliance | Ensures full legal compliance |
| Costly | Saves money |
In conclusion, outsourcing payroll is favourable and safer for most UK businesses.
Is it Common to Outsource Payroll?
Yes, it is common to outsource payroll in the UK. Businesses that outsource payroll can save time and money, focusing more on the rest of their core business operations.
Outsourcing payroll allows for accuracy and compliance – something many businesses are unable to ensure when it comes to handling employee wages and key tax laws. By outsourcing payroll, there’s little room for errors compared to completing it in-house.
Payroll Statistics for 2025
Recent payroll statistics for 2025 show:
- Only one-third of businesses still choose to manage payroll in-house
- Over 90% of businesses in the UK make payroll errors each month
- Two-thirds of small and medium-sized enterprises (SMEs) are expected to outsource payroll
Top Reasons Why Companies Outsource Payroll
There are several reasons why companies choose to outsource payroll in the UK.
1 – Streamline Operations
Running a business can be complex at times, so if there’s a way to streamline operations, why not do it? Outsourced payroll offers an easy way to ensure payroll is in order and managed effectively, leaving you more free time to focus on other areas of your business stress-free.
2 – Reduce Costs
Compared to in-house payroll, outsourcing payroll may be more cost-effective. By choosing to outsource payroll, you don’t need to cover costs to internally hire or train up your own payroll staff, buy the payroll software, and update your systems. That’s not to mention to potential for costly errors made by staff who may not be as experienced as accountants.
3 – Ensure Compliance
All businesses must ensure compliance, especially regarding payroll. Outsourcing payroll allows for maintained legal compliance and minimal errors.
4 – Improve Security
Outsourcing payroll can improve security, as the responsibility of handling both employee data and general payroll duties is handled by specialist providers who can use (and afford) more advanced security than many in-house teams, who may not be able to.
5 – Minimise Errors
There’s minimal room for errors when relying on expert teams and trusted outsourcing software used by professional providers.
The Pros and Cons of Outsourcing Payroll
With all business processes, outsourcing payroll comes with its pros and cons.
Advantages of Outsourcing Payroll
Expertise
Benefit from expertise and from a professional payroll team that can handle everything with ease, thanks to their knowledge and experience.
Accuracy
Payroll accuracy is essential. With a trusted team handling your payroll affairs, there will be little room for costly errors or penalties.
Compliance
In-house payroll teams may struggle to stay fully updated and compliant with changing payroll regulations, whereas outsourcing specialists can.
Cost efficiency
It may potentially cost more to hire and train internal teams to handle payroll, as opposed to paying a trusted third-party a set service fee.
Employee satisfaction
Efficient payroll management allows employees to be paid accurately and on time, helping to build trust and reduce stress that may be related to wage errors or payment delays.
Time saving
Businesses can save more time to focus on other vital aspects of their company with peace of mind, knowing that payroll is being handled correctly.
Improved security
When payroll services are outsourced, sensitive payroll and employee information is managed externally by specialist providers, which reduces the risk of internal data leaks.
Scalability
Outsourcing payroll can accommodate the growth of your business without having to worry about additional training or new hires.
Disadvantages of Outsourcing Payroll
Less Control
Outsourcing payroll means less control over the process. However, this isn’t always a disadvantage. For many businesses, overseeing and making changes to the process isn’t necessary.
Limited Oversight
When payroll is outsourced, HR teams may have limited oversight. While this can lead to potential errors, it can be prevented by choosing a reputable and experienced payroll specialist.
Dependency
Working with an external party to outsource payroll means that your business will be fully dependent on them, relying on their team to handle your payroll correctly.
Hidden Fees
Unexpected costs may occur when outsourcing payroll services, but this isn’t always the case.
To summarise, the pros of outsourcing payroll services outweigh the cons. For many, outsourcing payroll has proved an excellent business choice to ensure accuracy throughout the payroll process.
What Outsourced Payroll Services Offer
Outsourcing payroll services typically includes:
- Payroll requirement assessments
- Payroll processing
- Compliance checks
- Data collection
- Accurate and timely payslips
- Payment to employees
- Payroll reports
- Tax filings
- Integration with HMRC
- Expert advice and support
How to Choose the Right Accountant to Outsource Payroll
Choosing the right accountant to outsource your payroll doesn’t need to be difficult. Following a few simple steps can help determine who may be best to manage your company’s payroll.
Understand Your Needs
Have a clear understanding of exactly what it is that you require from your payroll accountant. This allows you to narrow down a selection of potential payroll specialists to work with.
Consider Experience
Experience is key. The more experience and knowledge an accountant has, the greater the chance of a streamlined and efficient payroll process.
Check Credentials and Testimonials
Checking company credentials and testimonials left by clients allows you to better understand how helpful and professional your accountant will be.
How Much Does Outsourcing Payroll Cost?
Outsourcing payroll costs typically varies depending on five key factors:
- The size of your company
- Payroll complexity
- Provider services
- Compliance needs
- Potential added service fees
It’s important to compare providers and complete thorough research to ensure you’re paying the right price for the type of service you require.
Key Takeaways
- Payroll is an important part of business operations
- It’s common for UK businesses to outsource payroll
- Outsourcing payroll will streamline operations, reduce costs, and ensure compliance
Do You Require Outsourced Payroll Services?
If you require expert outsourced payroll services, we can help. At LJS Accounting Services, you’ll have more free time to focus on growing your business while we handle the payroll side. In turn, this means peace of mind and less stress for you to deal with.
From calculating accurate tax payments to managing National Insurance deductions, you’ll be free from managing lengthy payroll tasks. We have over 10 years of experience, and our friendly team has a wealth of knowledge in managing payroll. You can rely on us for personalised and dedicated payroll services like no other.
Contact our team of payroll professionals today.
